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Recovery Certificate Holder Can Initiate CIRP As Financial Creditor Under IBC

Citation : Kotak Mahindra Bank Limited Versus A. Balakrishnan & Anr., Civil Appeal No. 689 Of 2021

Date of Judgment/Order : May 30, 2022

Court/Tribunal : Supreme Court Of India

Corum : L. Nageswara Rao; J., B.R. Gavai; J., A.S. Bopanna; J.

Background

The Appellant had filed applications before the Debt Recovery Tribunal for issuance of Debt Recovery Certificates in terms of the said compromise entered into between the parties. The said applications were allowed by the DRT and Recovery Certificates were issued against the borrower entities and the Corporate Debtor.

On the basis of the aforementioned Recovery Certificates, KMBL, claiming to be a financial creditor, filed an application under Section 7 of IBC, before the learned NCLT and sought initiation of Corporate Insolvency Resolution Process against the Corporate Debtor. The said application came to be admitted by the learned NCLT. The respondent no. 1 , Director of the Corporate Debtor filed an appeal against the said order of the learned NCLT before the learned NCLAT. The grounds raised by the respondent no. 1 in the said appeal were with regard to the application for initiating CIRP against the Corporate Debtor being filed after the expiry of limitation period. The said appeal was allowed by the NCLAT and subsequently appealed against before Supreme Court.

The question before the SC was whether the issuance of the Recovery Certificate in favour of the “financial creditor” would give rise to a fresh cause of action to initiate proceedings under Section 7 of the IBC

Judgment

The Supreme Court referring to the judgment in Dena Bank (Now Bank of Baroda) vs. C. Shivakumar Reddy and another, observed that it could thus be seen that this Court in the case of Dena Bank (supra) in paragraphs 136 and 141, has in unequivocal terms held that once a claim fructifies into a final judgment and order/decree, upon adjudication, and a certificate of recovery is also issued authorizing the creditor to realize its decretal dues, a fresh right accrues to the creditor to recover the amount of the final judgment and/or order/decree and/or the amount specified in the Recovery Certificate. It has further been held that issuance of a certificate of recovery in favour of the financial creditor would give rise to a fresh cause of action to the financial creditor, to initiate proceedings under Section 7 of the IBC for initiation of the CIRP, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the certificate of recovery, if the dues of the corporate debtor to the financial debtor, under the judgment and/or decree and/or in terms of the certificate of recovery, or any part thereof remained unpaid.

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